Trickle-Down Speconomics

Although not a new theme, Qualcomm's launch of its new Snapdragon 600 series chipsets further accelerates the trickle-down of high-tier specifications and reiterates a broader trend in the industry. As the company integrates main features such as the Hexagon digital signal processor, Spectra imaging chip and Kryo CPU into its latest range, the distinction between the Snapdragon 660 processor and the flagship Snapdragon 835 platform becomes increasingly blurred.

There's undoubtedly a balancing act at play given the potential for the 600 series to eat into sales of Qualcomm's Snapdragon 835 platform. But there's also a much bigger picture that points to a changing market structure and new spheres of influence on the semiconductor industry beyond traditional smartphone players.

One reason for the rising number of chipset portfolios, which are becoming increasingly segmented, is intensification of specific market needs. Growth of open-market channels means operators have less influence in emerging and mature markets including China. This is enabling manufacturers to prioritise chipsets based on other requirements for differentiation.

Consequently, the speed at which high-end features are shifting into mid-range handsets is accelerating, and this trend is evident in the entire supply chain for smartphone components. Much of this is being driven by market dynamics. In particular, growth of the China ecosystem coupled with the emergence of players with significant scale, such as Huawei, Oppo and Vivo, mean ambitions are ramping in parallel. Demand for premium-tier feature sets is increasing. Although this helps Qualcomm's flagship platform, it also means there's potential in the lower end of the market, enabled by a large volume opportunity — with volume comes scale and margin.

Subsequently, as Qualcomm sharpens its focus on a portfolio of chipset platforms, it can maximise demand and margins and manage the risk of customers choosing a lower-priced Snapdragon 600 series over a product from the 800 range. The company is also making it simple for manufacturers to select the appropriate chipset, thanks to its clearly defined portfolio and a high level of compatibility with software and intellectual property elements. Inevitably, that will mean the occasional design will take a very capable Snapdragon 600 series when the sale could have been a Snapdragon 835.

However, the reverse is also likely to be true. The growing number of Chinese equipment manufacturers with scale, mounting international focus and an emphasis on specific experiences for differentiation mean that those once focussed largely on mid-tier designs are moving up the price curve to more-premium offerings. As attributes such as digital signal and image signal processing gain significance, Qualcomm becomes an almost inescapable choice thanks to its feature set and limited competition in the mid- and high tier. Indeed, Qualcomm's launch of the Snapdragon 660 and 630 platforms is a clear move to consolidate its position and exacerbate the challenge for companies such as MediaTek and Huawei's HiSilicon unit.

Qualcomm is benefitting from the maturity of the China ecosystem. Manufacturers' ambitions are becoming bolder, demands are growing and Qualcomm has made it as simple as possible to select chipsets that closely match and scale to changing needs. Although it can't escape the ever-present threat of verticalisation as companies such as Xiaomi try to follow in the footsteps of Apple, Samsung and Huawei, Qualcomm is strengthening its position as the only real option for the long tail of manufacturers seeking to deliver devices in the mid-range and high tier.

Connectivity is becoming more complex and artificial intelligence increasingly requires close partnerships with cloud companies as well as deep levels of integration and optimisation, so the requirements to compete in chipsets beyond the mid-tier smartphone market are now vast.

MediaTek and HiSilicon remain formidable rivals but the pressures of mid- to high-range development are intensifying. We're entering another phase of mass disruption that goes beyond mobile and that is driving considerable change in the design and positioning of chipsets. Although operator requirements defined 3G and 4G connectivity, cloud companies and artificial intelligence will come to heavily influence chipset design and competition in the 5G era. The major source of differentiation will no longer be the number of processor cores, but integration and optimisation for neural processing, along with close cooperation with major protagonists in this space.

A version of this article was first published by FierceWireless on 27 June 2017 and can be viewed here.